Restaurant owner Salah Abu Hasira used to imagine his Gaza Strip homeland as a tourism destination with suntanned bathers lounging on its beach and visitors retracing the steps of biblical body-builder Samson.

Nine years after Israel withdrew settlers and soldiers from the coastal enclave, entire neighborhoods lay in ruins, leveled during a month of fighting between Palestinian militants and Israeli forces. More than 70 percent of the 1.8 million people living in the sliver of territory sandwiched between Israel and Egypt rely on United Nations handouts to survive. And the world’s most powerful nations shun its Islamist Hamas rulers as terrorists.

“I had big ambitions for tourist projects,” said Abu Hasira, 41, co-owner of the beachside Al-Salam, or Peace, seafood restaurant. “But our dreams have been broken, one by one.”

Truce talks in Cairo, meant to end a month of violence that killed more than 2,000 Palestinians and 67 on the Israeli side, had sought to trade quiet for better times in Gaza before militant rocket fire yesterday led Israel to yank its negotiators and strike targets across the Palestinian territory. Israel, which says its military offensive aims to end rocket attacks and cross-border raids, wants the strip demilitarized. A main Hamas demand is to lift the blockade Israel initiated in 2006, citing security concerns, after the militant group won Palestinian elections.

Self-Rule Test

The blockade has restricted entry of materials needed to repair the damage the military campaign has wrought. It has also pummeled the broader economy by blocking exports from Gaza, confining trade to a destitute territory the size of Detroit.

As the original seat of the Palestinian Authority, set up in 1994, Gaza was to have been the testing ground of Palestinian self-rule. Palestinians spoke of setting up free trade zones there and dotting its Mediterranean Sea coast with luxury hotels and spas.

Those dreams were never realized. Instead, Gaza kept up its reputation for violence and hardship. Militants in the birthplace of the first Palestinian uprising against Israel continued to use the territory as a launching pad for attacks, and the deadly rivalry between Arafat’s Fatah party and Hamas Islamists deepened.

Hamas’s unseating of Fatah in elections months after Israel’s pullout triggered the Israeli blockade, which Egypt joined. It also touched off the most dangerous Palestinian infighting of all: a week of violence in June 2007 in which Hamas wrested control of Gaza, leading to the formation of rival governments there and in the Fatah-dominated West Bank.

Billions in Damage

The U.S. and European Union, which consider Hamas a terrorist organization, boycotted its government, cutting off most aid. Israel tightened its blockade and subsequently warred three times with militants who stepped up their rocket fire. Although the Palestinian governments unified in June, in today’s Gaza, it’s hard to see past the strife, the rubble of blasted buildings and the threat of further violence.

Damage estimates range from the Gaza Chamber of Commerce’s $3 billion to the Gaza Housing Ministry’s estimate of as much as $8 billion. That last assessment outstrips the size of Gaza’s $6 billion economy, which is based on fishing, farming, light industry and local services.

Factories, Homes

Reconstruction “is going to be a massive task,” complicated by Egypt’s and Israel’s closure of their borders with Gaza, said Ghanem Nuseibeh, founder of Cornerstone Global Associates, which advises clients on risk in the Middle East.

“Gaza needs to have access to the outside world, it needs to have a proper governance structure in place and it needs job opportunities to get back on its feet,” Nuseibeh said by phone from London. “Without them, I don’t think Gaza can survive.”

Maher al-Taba’a, spokesman for the Gaza Chamber of Commerce, predicted it would take three to five years to revive the territory’s economy even if obstructions to commerce were removed. Israel has limited shipments of materials such as concrete and metal into Gaza that it says militants can use to attack it. Those restrictions have hampered efforts to rebuild Gaza’s factories as well as its homes.

‘Disaster Area’

Egypt and Norway plan to host a donor conference in Cairo to raise funds to rebuild Gaza, Norwegian Foreign Minister Boerge Brende said Aug. 18. Details are to be released once a long-term truce is reached, the ministry said.

Gaza’s Housing Minister Mofeed al-Hasayna estimates that 40,000 homes need to be replaced or repaired. Hamas has asked Turkey for disaster aid and has been promised mobile homes, he said.

The fighting sent unemployment soaring beyond 50 percent, while poverty — defined as subsistence on less than $2 a day — topped 40 percent, al-Taba’a said.

About 50 factories, most producing food, were demolished, according to Ali Hayek, chairman of the industry union. So, too, were livestock and chicken farms, and fishing boats. Israeli airstrikes destroyed Gaza’s main power plant, which provides electricity to 60 percent of the territory’s residents. Power blackouts have idled water and sewage pumping stations, said Gaza City Mayor Nizar Hijazi.

Khaled Isleem, an unemployed father of eight, returned to his Gaza City home 25 days after the Israeli army left a message on his phone advising him to flee ahead of an air strike. His joy at finding his house livable has been marred by the nights he and his family have spent in darkness. His wife washes their clothes by hand, when water can be found.

‘Tragic Reality’

“Gaza needs real change from this tragic reality,” Isleem said.

Palestinian leader Yasser Arafat spun a vision of a different reality when he returned to Gaza in 1994 to head the Palestinian government after more than a quarter century in exile. He spoke of transforming the squalid strip where the biblical Samson, blinded and vengeful, brought down a building on the heads of Philistine kings, into another Singapore.

Instead, violence and the blockade have “largely caused a clinical death of the economy and led to a loss of hope among Palestinians that their their living conditions would change,” said economist Omar Shaban, chairman of Pal-Think for Strategic Studies, a Gaza-based consultancy. “Gaza now is a devastated area that can only survive through intensive humanitarian aid.”

Abu Hasira, the restaurant owner, hasn’t given up all of his dreams. He says he still hopes to live in peace, without the threat of Israeli strikes and Palestinian political conflicts.

“I want to be able to go to work, come back home, take my wife out, raise my children well so they can have a prosperous life,” he said. “I’m aware of the problems, but I am a son of Gaza. It’s my duty to build it.”

To contact the reporters on this story: Donna Abu-Nasr in Beirut at dabunasr@bloomberg.net; Saud Abu Ramadan in Gaza City at sramadan@bloomberg.net. To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net.